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January 15, 2007

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Rick....how many common share deals are cut these days? I had the impression they are kind of rare.

Chris,

I suspect in the great scheme of things, they are raw as a percentage of deals done. I'd hope that as more and more education gets done, we might see more of them done.

Keep in mind, there are other rights that VCs want which typically get shoved into the pref shareholder agreements.

I have seen two common share deals in the last 6 months. In both cases, they were competitive term sheet situations - the teams had great success at their last startup and had done a great job using their own cash to nourish their current businesses along. Different circumstnaces from many deals, but not rare.

I'd think the VC community would have an incentive of their own to keep preference to within reasonable limits. After all, the more preference the VC has in a liquidity event, the less incentive the founders have to consent to a reasonable-but-not-stratospheric buyout offer...and in a sane market, the majority of offers are going to be of that sort. After all, in the real world no sale would ever go down with a price tag that meant all the money went to the investors...if the founders wanted to walk away penniless, they'd find it easier to just quit, rather than go out pimping their work to acquirers.

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